A Rough Day at the Park for Crude Oil

Ann Santiago
June 6, 2019

The continuance of US sanctions has led Brent crude to jump by about 29% in the course of the year.

U.S. West Texas Intermediate (WTI) crude futures were at $52.94 per barrel, down 31 cents, or 0.6%. Crude inventories rose 6.8 million barrels, compared with analyst expectations for a 849,000-barrel drawdown, to their highest since July 2017 and about 6% above the five year average for this time of year.

"Yesterday's upswing on the back of rising stock markets was halted by an unexpectedly sharp rise in USA crude oil and product stocks", Commerzbank said.

"Does it make sense (for Russia) to reduce (oil output) if the U.S immediately takes (our) market share?"

Saudi Arabia indicated that the group of oil producers, together with Russian Federation, would continue managing global crude supplies to avoid a surplus.

Front-month Brent crude futures were at $60.78 at 1030 GMT, 50 cents, or 0.85%, below the last session's close.

A day earlier, the American Petroleum Institute estimated inventories had gone up by 3.545 million barrels last week, with gasoline inventories also swelling.

The Nasdaq closed 2.7% higher, erasing its losses after a steep selloff on Monday driven by worries about tech company regulation.

Oil has fallen nearly 20% from a peak in late April, taking it to the brink of a bear market, as trade relations between Washington and Beijing soured and the White House announced tariffs on Mexican goods.

The oil market has been weighed down by concerns about slowing global growth due to the U.S. "To me, that means drawing down inventories from their now elevated levels", Energy Minister Khalid al-Falih was quoted as saying by the Saudi-owned Arab News newspaper.

Russia's average daily oil output has nonetheless dropped to a three year-low after contaminated crude clogged its main export route.

"The stock build does not help sentiment in the current market environment", ING bank said.

"We will do what is needed to sustain market stability beyond June".

In addition to this concern, Rosneft's Igor Sechin yesterday spoke out openly against an extension to the production cuts into the second half of the year and said Rosneft would seek compensation from the Kremlin if it decides to stay in the deal.

The kingdom boosted production last month by the most this year as output from fellow OPEC member Iran plunged to the lowest since 1990 due to U.S. sanctions, according to a Bloomberg survey of officials, analysts and ship-tracking data.

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